Emboldened by Swiss Vote and Banker Bonus Cap Victories, EU Leaders Promise Binding Say on Pay Legislation

March 14, 2013

On the heels of last week's Swiss vote imposing binding say on pay, European officials announced this week that they plan to introduce legislation which would impose binding say on pay rules which would be applicable across all 27 European countries.  According to the European Commission, which is responsible for the first drafts of EU law, the proposal would be aimed at “making shareholders more responsible on pay” rather functioning as a direct pay limitation, which would be against existing EU law.  The move comes on the heels of a successful effort by the EU to place caps on banker bonuses.  Despite these and other country specific limitations, political leaders for the EU and in several influential member nations, like France and Germany, have voiced support for compensation rules aimed at producing more “modest pay levels.”  The EU’s largest proxy advisory firm, PIRC, backed the proposal, stating that shareholders still need regulations with real muscle as evidenced by last year’s shareholder spring.  However, perhaps reflecting the increased fiduciary responsibility investors have shouldered as the result of an advisory vote, some EU investors, including Hermes Equity Ownership, part of Hermes Fund Managers, have stated that they feel a binding vote is impractical and even excessively risky due to the meddling into management of companies a binding vote would cause.   

A spokesman for the European Commission has stated a draft proposal would be introduced by the end of the year.  This would mean that the proposal, if it passes through the relevant procedural hurdles, is not likely to become law until at least 2014.